The Supply of Labour

 

There are a number of ways to refer to the supply of labour. A precise one is that the supply is the number willing and able to work within the market at a set of wage rates for a given time. The supply curve is likely to be upward sloping as the wage required to maximise the hours people work will increase the more work that they do unless there is infinite elasticity of supply.

There are across the developed world intense pressures on the supply of labour. In part, this is because of immigration restrictions which place barriers on the movement of people globally, so that national or regional labour markets are inelastic in supply. Another ‘global’ reason is the intense and accelerating decline in birth rates, which fell some time ago, or which are falling, to below replacement rates.

This process means that there are fewer young people entering the workforce, and more older people in society. That in turn means that, in Japan, Korea, or Italy, for example, there is a greater dependency of the old and welfare and healthcare systems on the earnings of all workers, as well as on the productivity of the economy. The consequence is that, in affected countries, taxes will rise, or service provision will fall, or retirement ages will be extended to later in life. There will also be a changing opportunity cost of labour with regard to capital, as wages rise because positions are not filled.  A cost-push effect on the economy could lead to a stagflationary environment.

In the early 1970s, western labour markets began to change as technology changed. This led to a growth in female employment and service industries, and to the ancillary services such as childcare, care homes, and the production of domestic goods which replaced a model in which married men funded multi-member households with industrial work. The change accompanied cost-push inflation and the energy crisis, to which the West and then the world responded with financialisation. This process is now not repeatable and is at an end, with market saturation of supply, and the implications for higher wages and tighter employment markets run alongside the stagflationary environment. In such circumstances, gender discrimination is not in most developed societies a satisfactory explanation for labour market rigidities.

As well as population and net immigration, labour markets are affected by barriers such as labour immobility. This could arise from geographical factors, such as the difficulty of locating affordable housing in areas of job growth, or problems in transport. In some economies, the existence of language or cultural barriers may impact upon the availability of labour or of labour to move from areas of unemployment to areas of job availability.

People being people, there are also ‘trade offs’ between leisure and work. These are sometimes confused with three other trade-offs, partly because the term ‘voluntary unemployment’ is ambiguous. Sometimes, childcare costs, or the costs of looking after an ill relative or a household by employing others are so high that work is not a rational economic choice. Leaving the workforce and staying at home in such circumstances, provided a family income from elsewhere can be obtained, does maximise utility. This might be complemented by a welfare system that does not encourage work, or by a type of union control of jobs which ‘locks out’ non-union members and lowers the number of jobs available because of high wages.

It is possible that better working conditions and high wages, or a liveable minimum wage, allow for a greater supply of labour, with higher productivity. This is because people might want to work in such conditions and find that their trade-off changes. It would not change the demand calculation of workers versus machinery unless the new workers were cheaper in some way than the existing workforce, or more productive.

Younger and older societies tend to have different interpretations of leisure time. Younger people might wish to maximise work time and to accrue every marginal benefit from work during working hours, and then have the stamina to sustain a night-time or evening leisure economy, or short breaks paid for by a combination of work and credit made available by work. Middle aged and older societies may prefer higher wages for fewer hours, and to extend breaks and part-time working.

These differences suggest that dynamic labour markets might be ones which contain different contracts and terms of employment. By contrast, rigid labour markets in which the bulk of people work at the same hours for common modal incomes on the same basis with the same conditions might be more rigid and inelastic in the supply of labour.

The tax and welfare system can have a serious effect on the supply of labour. For instance, marginal tax rates could affect the decision of individuals about whether they seek work and for how long. The tax rates on self-employment and the ease by which people could be self-employed might also matter in those circumstances.

Finally, the availability of apprenticeships and training, and the nature of individual and household debt might affect the supply of labour. Many people in the modern workforce require a job to obtain credit, and to meet the minimum payments on credit cards, for instance. Many graduate disposable incomes are low, because debts of several sorts and the expansion of graduate supply mean that there is less return than there once was to many degrees. This may mean that in the future, fewer people enter university, and that an oversupply of graduates turns into a market rigidity.

There is much less union membership in the twenty-first century UK labour market than there was for most of the twentieth. This means that unions are not as able to act as monopoly controllers of labour, and of course unions cannot enforce membership through closed shop agreements. Union power to strike or engage in restrictive practices has also been severely curtailed.

In natural monopolies such as the London underground, however, and in government and state schools, union membership is still high and union militancy is still a constraint on labour. This situation is in contrast with, for instance, the non-unionised position of warehouse workers. Even where there are high levels of trade membership, however, as amongst nurses in the NHS, unions have not been able to realise significant increases in pay.

Successive British governments have pursued different strategies to encourage employment and greater market supply. After the restriction of union power in the eighties, for instance, labour markets were deregulated further between 1990 and 2010. Welfare systems, which once experimented with family allowances and state provision of childcare, moved through tax credits and incentives for work to universal credit, which is predicated upon work as the norm. The national minimum wage, which is differentiated by age, has been adapted to the idea of a national living wage. The income tax system has been simplified, as has that for self-employment, compared to previous versions.  Zero-hours contracts have been introduced and are now a settled part of some employment sectors.

Technology is also changing the requirements of employers and the supply of labour, in that online shopping, for instance, requires workers with very little training to simply either shop or transport goods. As with other forms of tech-based employment, this allows workers to offer themselves for long or short periods, on a minimum-conditions basis, and sometimes even to provide (as with uber) their own capital equipment. This elastic and flexible new workforce, however, has very little opportunity for economic mobility, career and occupational progression, savings, or the accumulation of pensions or seniority, and faces a lower average wage than the full-time employed.

Marginal ‘odd jobs’ to make ends meet have become occupations, in a way that is not ultimately good for productivity or society, not least because the same technology which allows for more supermarket jobs also allows general practitioners and lecturers to deliver a worse service online, encourages GPs to work fewer days a week, and degrades the provision of taxpayer funded merit goods whilst encouraging the state to stint on investment in human resources. Barristers have seen great falls in income in criminal courts, for instance, as technology has led the Ministry of Justice to think about smart scheduling of cases and to offload case preparation onto fees-based workers so that employees in the crown prosecution service are rated as efficient.

Making labour markets less rigid in such ways has consequences. One is the creation of a ‘precariat’ who have funded their skills by loans, who have low disposable incomes, and who will seek occupational mobility or emigration if they can. This will, ultimately, create productivity gains for a short period, as in academic non-tenured teaching circuits, but at the long-term expense of the sectors involved and of goodwill and society.